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Bulgaria: World Bank Ready To Help, But First...

Washington, 4 October 1996 (RFE/RL) -- There is no indication of a breakthrough in talks between Bulgarian officials and leaders of the International Monetary Fund this week in Washington, but once Sofia is able to get its IMF economic stabilization program back on track, the World Bank is standing ready to pitch in.

The director of the bank's Southeastern Europe Department, Kenneth Lay, says that Bulgaria will have to move decisively to close down or privatize large numbers of state-owned enterprises which are draining the country's economy.

"We're interested in financing a restructured Bulgaria," Lay told a small group of journalists at the annual meetings of the bank and the fund this week, "but we're not interested in financing an unrestructured Bulgaria."

While the IMF is working with Bulgaria to get its economic stabilization program working and to restructure its banking sector, the bank is concentrating on the enterprise sector, privatization and financial discipline in enterprises, says Lay.

"The heart of this problem is the hemorrhaging of wealth" that has been caused by state-owned enterprises which are actually "subtracting value" from the gross domestic product (GDP), not adding to it.

Lay says the government of Bulgaria has taken a first step, strongly recommended by the bank, in filing for bankruptcy on 60 state firms which don't even bring in enough money to pay for the raw materials used, let alone to pay the costs of labor and manufacturing.

On top of that, the government has adopted a law suggested by the bank to cut off from state funds another 72 enterprises which have been consistently losing money for years. Those 72 are to be restructured and privatized on a commercially viable basis or shut down.

Lay says the hemorrhaging from these enterprises has "continued unabated for much longer than this country can afford," and the bank is demanding that it stop. But it will require action, not words, to win the bank's support, says Lay. The government can't just file papers, he says -- the firm must actually "cease doing business, the assets sold off and the workers collecting severance."

The bank recently made a $30 million loan to Bulgaria to help pay the severance of workers from the shut down enterprises. At the same time, he says, Sofia must move ahead dramatically on privatization of a large part of the state-owned enterprise sector.

"A critical factor, and perhaps the most important," says Lay, "is the success of the government in creating a (privatization) process that is open and transparent, widely advertised and instills confidence in investors, both foreign and domestic, that they are going to be fairly treated."

Lay says the mass voucher privatization program tentatively scheduled to begin next week is an important step.

"The ultimate solution is first to stop the hemorrhaging, then get these assets into the hands of private business, and that is why this accelerated privatization program is a good sign for us that people finally understand the urgency of moving that process forward," he says.

Above all, however, it is "critical" that Bulgaria get its macroeconomic stabilization program straightened out with the IMF.

The fund approved a stand-by credit of around $582 million in July to underwrite the stabilization program, and Sofia drew the first $116.7 million immediately, with another $116.7 million to be made available in a month.

By August, however, a collapsing banking system and failure to move ahead on privatization unraveled the stabilization program. Sofia then couldn't pass the first monthly review, so was prevented from drawing the second traunch of the loan.

There have been intensive discussions in Washington and Sofia over the last several weeks as the government attempts to work out a renewed program with the IMF. Lay says, however, that for every day the talks go on, the solution becomes more and more difficult.

"It's not a pretty picture," says the World Bank official, "but I have not given up hope." He said he is finding an "increasing degree of focus on the part of potential private investors who are saying: 'Bulgaria may be getting to a turning point,' and are watching closely."